Wall Street can’t seem to agree on Taiwan Semiconductor (TSM). In the second quarter, hedge funds were almost evenly split, with roughly as many selling shares as were adding to their stakes. But one move stood out. George Soros’ fund, Soros Capital Management, lifted its TSMC stake by more than 1,000%, taking it to around $37 million. Other well-known names increased their holdings, too, including Third Point, Appaloosa, and Stanley Druckenmiller’s Duquesne Family Office. On the other hand, funds like Lone Pine and SoftBank (SFTBY) cut hard.
So, who’s reading it right? The recent numbers make a strong case for the buyers.
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The Fundamentals Are Backing the Bulls
Taiwan Semiconductor Manufacturing Company (TSMC) just posted a record quarter. Revenue rose 36% from a year ago to $40.2 billion, net profit jumped 77% year-over-year (YOY), and gross margin hit a record 67.7%. The growth is coming from artificial intelligence (AI). High-performance computing, the segment tied to AI data-center chips, now makes up two-thirds of revenue after surging 20% sequentially. Management raised its full-year growth outlook to above 40% and said it remains highly confident in AI’s long-term growth.
The other driver is the U.S. buildout, which is starting to pay off rather than just drain cash. Bank of America noted that TSMC’s Arizona fab sales rose 145% YOY, and stated that the ramp is “progressing well,” with margins holding up better than expected. As I mentioned before, TSMC has also pledged an additional $100 billion for its U.S. operations, bringing its total planned Arizona investment to $265 billion.
That combination — record AI-driven earnings and a U.S. expansion that’s executing — is likely what drew Soros and other buyers in. The funds cutting their stakes may simply be locking in gains after a huge run. But for the buyers, the reasoning is clear: TSMC makes almost every leading-edge chip, so if AI demand holds, few companies are better placed to benefit.
About TSM Stock
TSMC is the world’s largest semiconductor foundry. Together with its subsidiaries, the company manufactures, packages, tests, and sells integrated circuits and other semiconductor devices. Taiwan Semiconductor provides various wafer fabrication processes, with its products used in high-performance computing, smartphones, IoT, automotive, and digital consumer electronics. The company is also involved in providing customer and engineering support services. Founded in 1987, the company is headquartered in Hsinchu, Taiwan.
TSM stock has climbed rapidly over the past year, delivering gains of around 75%, while the iShares Semiconductor ETF (SOXX) has returned about 104% over the same period. This shows that TSM stock has slightly underperformed the broader semiconductor sector despite its strong performance. The trend has continued this year as well, with the stock rising approximately 35% year-to-date (YTD) versus the iShares Semiconductor ETF's return of 68%.
www.barchart.com TSMC’s valuation sits at a premium to its own history. The forward price-to-earnings (P/E) ratio of 25.3 times is above the five-year average of 22 times, a modest increase for a company growing earnings this fast. However, the premium is steeper when it comes to the price-to-sales (P/S) ratio, which sits at 17.6 times against a five-year average of about 8 times. That gap reflects how much margins have improved; investors are paying more per dollar of sales because each sale is now far more profitable.
The EPS outlook helps justify the premium. Analysts expect earnings growth of 54% in fiscal 2026 and 27% in fiscal 2027. That is healthy and durable growth for a company already worth $2 trillion by market capitalization. The capital structure is also exceptional. TSMC holds about $111 billion in cash against roughly $34 billion in debt, leaving it comfortably net cash positive.
So, TSM stock isn’t cheap, but the premium is backed well by strong earnings growth and a solid balance sheet.
TSMC Raises Its Outlook as AI Demand Keeps Accelerating
Taiwan Semiconductor reported its second-quarter fiscal 2026 earnings on July 16. The company reported revenue of $40.2 billion. Gross margin for the quarter was 67.7%, up 150 basis points sequentially. The semiconductor company’s capital expenditures for Q2 were roughly $15.7 billion. TSMC said that advanced technologies, which includes 3-nanometer and 5nm production, accounted for the bulk of wafer revenue in the quarter, while AI and high-performance computing remained the main growth engines.
Looking forward to Q3, TSMC projected revenue of $44.6 billion to $45.8 billion, implying about 12% sequential growth and 37% YOY growth at the midpoint. Gross margin is expected to ease to between 65% and 67%. For full-year 2026, the company raised its revenue growth outlook to slightly above 40% in U.S. dollar terms. That is a notable upgrade and reflects stronger-than-expected demand, especially from AI-related customers. TSMC also raised its 2026 capital spending guidance to between $60 billion and $64 billion, reflecting both stronger demand and higher equipment prices.
What Do Analysts Expect for TSM Stock?
On Aug. 18, Bank of America Securities analyst Haas Liu reiterated a “Buy” rating on TSMC. Bernstein also recently maintained a “Buy” rating on TSM stock and raised its price target from $430 to $554. That upward price target revision reflects 36% potential upside from current levels.
Based on 17 Wall Street analysts with coverage, TSM stock holds a consensus “Strong Buy” rating. Out of those analysts, 14 have a “Strong Buy” rating, two have a “Moderate Buy” rating, and one has a “Hold” rating. The mean price target of $512.69 reflects 26% potential upside from current levels. Meanwhile, the high price target of $650 suggests a possible climb of 59%, reflecting even more investor confidence in Taiwan Semiconductor's long-term growth prospects.
www.barchart.com On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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